Chidambaram pledges to meet deficit goals after tough week in markets

Mumbai: Finance Minister pledged on Thursday to meet the country's fiscal and current account deficit targets, as fears of the US Federal Reserve reducing its stimulus fuel concern over India's vulnerability to foreign sell-offs.

P Chidambaram's comments follow those of Reserve Bank of India Governor Raghuram Rajan, who on Wednesday highlighted a fall in core consumer inflation and announced an 80 billion rupee bond purchase.

The rupee slumped this week to a two-month low against the dollar as renewed talk of an early reduction in US stimulus raised concern about the impact on a country that depends on foreign investments to bridge a current account deficit that hit a record high last fiscal year.

The fall in the currency comes as the ruling Congress Party, hit by corruption scandals and a toxic mix of a weak economy and surging inflation, campaigns in five state elections in November ahead of national elections next year.

Some are concerned the government will crank up spending to win votes, threatening a fiscal deficit target of 4.8 percent of gross domestic product for the year ending in March.

"I have said and I repeat it: This year the fiscal deficit will be contained at below 4.8 percent no matter what requires to be done. It will be contained at below 4.8 percent. We will address both the revenue side and the expenditure side," Chidambaram said in a speech to a private bank in Mumbai.

Indian markets have experienced a tough week, with bonds and shares also falling, as stronger-than-expected US jobs data sparked concerns about an early taper of the Fed stimulus.

Markets were also hit hard in the summer by the same fears, sending the rupee to a record low of 68.85 to the dollar, although it has recovered 12.9 percent since then.

Nicholas Spiro, managing director of Spiro Sovereign Strategy said Indian policymakers appeared determined to nip the worsening market sentiment in the bud.

"It is very important that at a time when there is a renewed concern about tapering, it is very important that things don't start to slip again," he said.